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rOUNDED  BY  JOHN  D.  ROCKEFELLER 


THE  ECONOMICS  OF  HENRY 

GEORGE'S  "PROGRESS 

AND  POVERTY" 


A  DISSERTATION 

submitted  to  the  faculty    of   the    graduate   school    of    arts 

and  literature  in  candidacy  for  the  degree 

of  doctor  of  philosophy 

(department  of  political  economy) 


BY 
EDGAR  H.  JOHNSON 


Reprinted  from  The  Journal  of  Political  Economy,  Vol.  XVIII,  No.  9 

Chicago,  19 10 


Ubc  xanivcrsit^  of  Cbicago 

FOUNDED  BY  JOHN  D.  ROCKEFELLER 


THE  ECONOMICS  OF  HENRY 

GEORGE'S  "PROGRESS 

AND  POVERTY" 


A  DISSERTATION 

SUBMITTED    TO    THE     FACULTY     OF     THE     GRADUATE     SCHOOL     OF     ARTS 

AND    LITERATURE    IN    CANDIDACY    FOR    THE    DEGREE 

OF  DOCTOR  OF  PHILOSOPHY 

(department  of  POLITICAL  ECONOMY) 


BY 

EDGAR  H.  JOHNSON 

a 


Reprinted  from  The  Journal  of  Political  Economy,  Vol.  XVIII,  No.  9 

Chicago,  1910 


£e^^t^ ,  //5  ■ 


.rj\ 


THE  ECONOMICS  OF  HENRY  GEORGE'S  "PROGRESS 

AND   POVERTY" 

Among  the  notable  fiscal  and  social  movements  of  recent 
years- has  been  the  tendency  to  lay  increasing  burdens  of  taxa- 
tion on  land.  The  hotly  contested  campaign  resulting  in  the 
passage  of  the  Lloyd-George  budget  attracted  world-wide  inter- 
est. Under  this  law  20  per  cent,  of  the  increment  in  the  value 
of  land  will  be  payable  as  a  tax  at  each  transfer  of  title.  The 
increment  tax  is  making  considerable  headway  among  the  mu- 
nicipalities of  Germany.  Of  the  forty-one  German  cities  with 
a  population  of  more  than  100,000,  fifteen  had  such  a  tax  in 
July,  1909.^  Some 'counties  (Kreise)  have  also  introduced  the 
tax.  The  chief  motive  for  the  new  taxes  in  the  old  counties 
seems  to  have  been  the  necessity  for  additional  revenue. 

In  the  newer  countries  of  Australia  and  Canada  laws  have 
been  passed  which  show  a  still  more  radical  tendency  to  increase 
land  taxes.  Under  some  of  these  laws  taxes  are  assessed  on 
the  basis  of  value  of  the  land  irrespective  of  the  improve- 
ments thereon,  while  under  others  a  higher  rate  of  taxes  is  laid 
on  unimproved  than  on  improved  real  estate.  The  forces  lead- 
ing to  this  legislation  have  been  a  desire  to  attract  the  invest- 
ment of  capital  by  the  promise  of  light  taxation  on  this  fofm  of 
wealth  and  probably  also  a  wider  acceptance  in  the  neW;  coun- 
tries of  the  Single-Tax  doctrine.^ 

*A.  N.  Holcombe,  Quarterly  Journal  of  Economics,  XXIV,  194. 

"  In  South  AustTalig  and  New  ,Z,ea|aiid;  the  state  land  tax  is  assessed  on 
the  basis  of  unimproved,  value;.  \  tn  b^th  tliese  states  and  also  in  New  South 
Wales  municipal  raters  .mgy  .glsQ  b^.lpvied  on  .the  basis  of  the  unimproved  value 
of  land  if  a  loca,l>i;e;£^Etepda«ff.  s(J  t^ecides.^' Mn  1906,  43  of  the  113  boroughs  of 
New  Zealand  assessed  rates  on  this  basis  (Papers  Relating  to  the  Working  of 
Taxation  of  Unimproved  Value  of  Land  in  Nezv  Zealand,  New  South  Wales, 
and  South  Australia,  November,  1906  [Cd.  3191],  pp.  24,  25,  45;  and  Papers 
Relative  to  the  Working  of  Taxation  of  the  Unimproved  Value  of  Land  in  New 
South  Wales  [Cd.  3761],  September,  1907,  p.  5).  In  British  Columbia  there  is  a 
provincial  tax  of  three-fifths  of  i  per  cent,  on  improved  property  and  of  4  per 
cent,  on  unimproved  property.  Of  real  estate  within  the  bounds  of  municipali- 
ties there  is  a  separate  valuation  of  lands  and  improvements.     Improvements  are 

714 


hlBn 


K    t.- 


ECONOMICS  OF  "PROGRESS" AND  POVERTY"  715 

These  developments  in  the  field  of  actual  legislation  natu- 
rally reawaken  interest  in  the  Single  Tax  and  in  the  now  classic 
book  which  contains  the  explanation  and  defense  of  that  theory. 
Progress  and  Poverty,  however,,  is  more  than  a  discussion  of  the 
Single  Tax.  George  carries  the  reader  through  more  than  three 
hundred  pages  before  he  even  makes  a  statement  of  the  policy  of 
taxation  which  he  proposes.  The  exposition  of  the  general  prin- 
ciples of  political  economy  here  found  is  still  loyally  accepted 
by  many  Single  Taxers. 

The  chief  quality  of  the  system  of  political  economy  found 
in  Progress  and  Poverty  is  that  it  is  built  up  to  support  and  har- 
monize with  George's  leading  thought,  that  the  main  source  of 
our  economic  ills  is  the  private  appropriation  of  rent,  and  that 
the  consequent  remedy  is  the  Single  Tax  on  land.  An  exami- 
nation of  this  system  will  show  that  Single  Tax  is  its  terminus  a 
quo  as  well  as  its  terminus  ad  queui.  How  from  this  standpoint 
George  treats  the  subject  of  Malthusianism  and  the  law  of 
diminishing  returns,  the  relation  of  capital  to  wages,  the  law  of 
wage  and  of  interest,  and  the  theory  of  crises  will  be  briefly 
discussed. 

George  opposes  the  Malthusian  doctrine  because  it  ".paw^es 
the  demand  for  reform  and  shelters  selfishness  from  question  and 
from  conscience  by  the  interposition  of  an  inevitable  necessity. 
It  furnishes  a  philosophy  by  which  Dives  as  he  feasts  can  shut 
out  the  image  of  Lazarus  who  faints  with  hunger  at  his  door."-^ 
The  real  cause  of  want  in  Ireland  and  India  and  China,  he  says, 
has  been  "the  rapacity  of  man.  not  the  niggardliness  of  nature." 
"It  is  not  dense  population,  but  the  causes  which  prevent  social 

assessed  at  most  at  only  50  per  cent,  of  their  value  and  at  the  discretion  of 
the  council  this  percentage  may  be  less.  Of  thirty-three  municipalities  which 
are  reported  in  1907  eleven  laid  no  tax  on  improvements.  Since  then  the  city 
of  Vancouver  has  removed  all  taxes  on  improvements,  which  it  formerly  assessed 
at  25  per  cent,  of  their  value.  The  principle  of  taxation  on  the  basis  of  unim- 
proved land  value  is  also  applied  in  some  of  the  villages  of  Alberta  {Papers 
Relative  to  the  Working  of  Taxation  of  Unimproved  Value  of  Land  in  Canada, 
September,  1907  [Cd.  3740],  pp.  7.  12,  15). 
'  Henry  George,  Progress  and  Poverty,  99. 


228276 


7l6  JOURNAL  OF  POLITICAL  ECONOMY 

organization  from  taking  natural  development  and  labor  from 
securing  its  full  returns  that  keeps  millions  on  the  verge  of 
starvation  and  every  now  and  then  forces  millions  beyond  it."^ 

He  denies  that  an  increase  of  mankind  leads  to  a  pressure 
against  the  means  of  subsistence,  but  admits  that  this  holds 
true  of  plants  and  animals."'     He  then  says : 

Does  not  the  fact  that  all  of  the  things  which  furnish  means  of  subsist- 
ence have  the  power  to  multiply  many  fold,  some  of  them  many  thousand 
fold,  and  some  of  them  many  million  fold  or  even  billion  fold,  while  he  is 
only  doubling  his  numbers,  show  that,  let  human  beings  increase  to  the  full 
of  their  reproductive  power,  the  increase  of  population  can  never  exceed 
subsistence  ?' 

The  inconsistency  of  this  reasoning  is  easily  seen.  It  is 
indeed  true  that,  favorable  conditions  being  given,  plants  and 
animals  which  furnish  food  for  man  can  be  multiplied  more 
rapidly  than  man  himself.  But  as  soon  as  the  plants  and  ani- 
mals begin  to  press  on  their  means  of  subsistence  it  is  evident 
that  a  limit  to  population  is  set  beyond  which  the  same  will  be 
true  of  mankind.  Let  "human  beings  increase  to  the  full  of 
their  reproductive  power"  for  a  few  centuries,  and  they  would 
become  so  numerous  that  not  all  the  land  in  the  world  could 
furnish  enough  room  for  the  growth  of  the  plants  and  animals 
necessary  to  the  sustenance  of  this  vast  population.  The  diffi- 
culty thus  lies  in  the  very  thing  he  admits — the  pressure  of 
plants  and  animals  on  their  means  of  subsistence. 

Malthus  thinks  that  an  increase  in  general  wealth  will  almost 
inevitably  lead  to  an  increase  in  population.  George  does  not 
accept  this,  and  herein  is  the  main  difference  between  them. 
"Give  more  food,  open  fuller  conditions  of  life,  and  the  vege- 
table can  but  multiply;  the  man  will  develop."'''  He  holds  that 
the  tendency  of  population  to  "increase  weakens"  just  as  the 
high  development  of  the  individual  becomes  possible  and  the 
perpetuity  of  the  race  is  assured.^ 

It  is  quite  interesting  to  note  George's  treatment  of  the  law 
of  diminishing  returns  of  land.  So  far  as  this  law  is  useful  in 
showing  that  an  increase  of  rent  results  from  an  increase  in 

*  Ibid.,  121. 

"Ibid.,   129.  'Ibid.,  130.  'Ibid.,  136.  ^  Ibid.,  138. 


ECONOMICS  OF  "PROGRESS  AND  POVERTY"  717 

population,  it  suits  his  purpose  and  has  his  approval.  He  endeav- 
ors, however,  to  avoid  its  corollary — that  an  increase  of  popu- 
lation will  cause  a  pressure  on  the  means  of  subsistence. 

He  represents  the  doctrine  as  though  it  ascribed  the  dimin- 
ishing productivity  of  the  soil  in  response  to  additional  appli- 
cations of  labor  and  capital  to  the  abstraction  and  removal  from 
the  soil  of  elements  of  fertility.^  He  thinks  that  he  has  dis- 
proved the  law  as  applied  to  the  whole  world  by  pointing  out 
that  according  to  the  scientific  laws  of  the  indestructibility  of 
matter  and  the  conservation  of  energy  the  elements  of  fer- 
tility cannot  be  destroyed  but  are  still  somewhere  in  the  earth.  ^"^ 
So  far  as  contributing  to  the  production  of  subsistence  is  con- 
cerned, the  carrying-away  of  soil  and  its  products  to  the  bottom 
of  the  sea  amounts  practically  to  their  destruction.  However, 
even  if  the  soil  could  be  preserved  from  the  rain  which  washes 
it  and  the  wind  which  blows  it  away,  even  if  the  products  of 
the  soil  were  restored  to  it  and  there  were  no  loss  of  fertility, 
the  soil  would  still  give  diminishing  returns,  beyond  a  certain 
point  of  cultivation,  to  additional  applications  of  labor  and  capi- 
tal. This  manifest  misrepresentation  of  the  doctrine  of  dimin- 
ishing returns  shows  how  distasteful  to  George  was  this  eco- 
nomic law. 

George  quotes  from  John  Stuart  Mill :  "A  greater  number 
of  people  cannot,  in  any  given  state  of  civilization,  be  collect- 
ively so  well  provided  for  as  a  smaller.  The  niggardliness  of 
nature,  not  the  injustice  of  society,  is  the  cause  of  the  penalty 

attached  to  overpopulation ""     With  reference  to  this  he 

says : 

All  this  I  deny.  I  assert  that  the  very  reverse  of  these  propositions  is 
true.     I  assert  that  in  any  given  state  of  civilization  a  greater  number  of 

'Ibid.,  133. 

"  According  to  the  doctrine  of  the  conservation  of  forces  it  is  the  sum- 
total  of  forces  in  the  universe  that  remains  unchanged — not  the  sum  of  the 
forces  which  operate  in  and  on  the  earth.  Hence  it  may  ultimately  be  true  that 
at  some  remote  period  in  the  future  little  or  no  life  can  be  maintained  on  this 
globe.  It  is  interesting  moreover  to  note  that  the  scientists  no  longer  agree  in 
teaching  that  there  is  a  conservation  of  energy.  See  Henry  Adams,  A  Letter 
to  American  Teachers  of  History,  i  ff. 

"  John  Stuart  Mill,  Principles  of  Political  Economy,  Book  I,  chap,  xiii,  §  2. 


.r^ 


7l8  JOURNAL  OF  POLITICAL  ECONOMY 

people  can  collectively  be  better  provided  for  than  a  smaller.  I  assert  that 
the  injustice  of  society,  not  the  niggardliness  of  nature,  is  the  cause  of 
the  want  and  misery  which  the  current  theory  attributes  to  overpopulation. 
I  assert  that  the  new  mouths  which  an  increasing  population  calls  into  exist- 
ence require  no  more  food  than  the  old  ones,  while  the  hands  they  bring 
with  them  can  in  the  natural  order  of  things  produce  more.  I  assert  that, 
other  things  being  equal,  the  greater  the  population,  the  greater  the  comfort 
which  an  equitable  distribution  of  wealth  would  give  to  each  individual.  I 
assert  that  in  a  state  of  equality  the  natural  increase  of  population  would 
constantly  tend  to  make  every  individual  richer  instead  of  poorer." 

In  support  of  this  he  appeals  to  the  examples  furnished  by- 
England  and 'the  United  States.  But  this  does  not  prove  what 
he  assumes  it  to  do.  "I  assert,"  he  says,  "that  in  any  given 
state  of  civilization  a  greater  number  of  people  can  collectively 
be  better  provided  for  than  a  smaller."  The  state  of  civili- 
zation in  the  United  States  and  England  has  been  far  from 
remaining  the  same.  No  previous  century  witnessed  so  many 
improvements  in  the  arts  of  producing  wealth  as  the  first  in  the 
history  of  the  United  States.  {Progress  and  Poverty  was  written 
only  three  years  after  our  Centennial  celebration.)  Yet  George 
takes  no  account  of  this,  and  ascribes  the  increased  per-capita 
production  to  an  increase  in  population.  An  increase  in  per- 
capita  production  has  indeed  gone  along  with  an  increase  in 
population,  but  post  hoc  is  not  propter  hoc.  Rather  it  is  the 
increase  in  the  per-capita  production  which  has  made  possible 
the  increase  in  population  without  lowering  the  standard  of  life. 

To  support  his  proposition  George  appeals  also  to  a  com- 
parison at  the  present  time  of  the  wealth  of  densely  and  of 
sparsely  populated  communities. 

Where  will  you  find  wealth  devoted  with  most  lavishness  to  non- 
productive use — costly  buildings,  fine  furniture,  luxurious  equipages,  statues, 
pictures,  pleasure  gardens,  and  yachts?  Is  it  not  where  population  is 
densest  rather  than  where  it  is  sparsest?  ....  These  things  conclusively 
show  that  wealth  is  greatest  where  population  is  densest ;  that  the  production 
of  wealth  to  a  given  amount  of  labor  increases  as  population  increases.'* 

To  this  argument  the  same  objection  as  before  may  be 
given.     Because  great  wealth  is  found  where  there  is  a  dense 

^  Henry  George,  Progress  and  Poverty,  142. 
"Ibid.,  143,  144. 


ECONOMICS  OF  "PROGRESS  AND  POVERTY"  719 

population,  it  does  not  follow  that  mere  increase  in  numbers 
will  by  itself  cause  a  large  per-capita  production.  For  reasons 
easy  to  explain,  the  most  capable  workers  resort  to  the  city. 
The  less  capable  workers  remain  in  the  country  to  do  the 
simpler  and  ruder  work  which  is  there  required.  Again,  men 
of  great  wealth,  whether  landlords  or  capitalists,  are  naturally 
to  be  found  in  the  city,  on  account  of  its  superior  social  and 
commercial  advantages.  These  simple  considerations  show  how 
unreasonable  it  is  to  ascribe  the  greater  per-capita  wealth  and 
income  of  the  cities  to  mere  density  of  population. 

Note,  however,  that  even  if  George  be  correct  in  claiming 
that  the  increase  in  the  per-capita  production  to  be  found  in 
the  cities  is  due  to  a  mere  increase  in  numbers,  this  will  not  jus- 
tify him  in  saying  that  an  increase  in  population  should  make 
its  support  more  easy.  By  so  doing  he  confuses  subsistence 
with  wealth.  "For  the  power  of  producing  wealth  in  any  form," 
he  says,  "is  the  power  of  producing  subsistence — and  the  con- 
sumption of  wealth  in  any  form,  or  of  wealth-producing  power, 
is  equivalent  to  the  consumption  of  subsistence."^^  The  question 
of  subsistence  for  any  individual  or  community  which  ex- 
changes with  the  rest  of  the  world  may  indeed  be  a  question 
of  producing  wealth.  This  is  not  true,  however,  of  the  world 
as  a  whole.  Suppose,  for  the  sake  of  simplicity,  a  self-suffi- 
cing country  living  apart  from  the  rest  of  the  world.  The 
population  increases  until  the  soil  yields  but  little  larger  crops 
to  the  increased  exertion  of  labor.  Suppose  now  a  change  to 
take  place  in  the  ability  and  tastes  of  these  people.  They  take 
the  same  wool  and  cotton,  and  out  of  them  weave  more  elegant 
fabrics ;  they  take  the  same  wood,  and  from  it  make  furniture 
and  houses  which  are  better  designed  and  therefore  more  valu- 
able. While  this  takes  place  the  methods  of  cultivating  the  soil 
will  probably  make  but  little  improvement.  The  wealth  of 
the  country  measured  in  money  has  perhaps  increased  threefold; 
but  it  evidently  does  not  follow  that  therefore  the  country  could 
support  three  times  or  even  double  the  population  so  well  as 
before. 

^*  Ibid.,   133. 


720  JOURNAL  OF  POLITICAL  ECONOMY 

The  question  of  subsistence  is  largely  a  question  of  agri- 
cultural produce.  Certain  economies  in  the  use  of  food  and 
materials  are  possible,  but,  generally  speaking,  to  feed  and  clothe 
more  people  it  is  necessary  that  the  land  yield  larger  crops.  Less 
improvements  in  methods  of  agriculture,  however,  have  been 
made  than  in  manufactures,  and  the  most  notable  inventions  in 
agricultural  machinery  have  been  such  as  save  labor  without 
increasing  the  yield  per  acre. 

It  is  plain  that  a  manufacturing  country  with  a  wide  com- 
merce may  greatly  increase  its  wealth  and  population  without 
any  lessening  of  the  average  comfort  so  long  as  it  can  draw  on 
its  neighbors  for  subsistence  and  raw  material.  In  discussing 
the  general  question  of  population  the  application  of  the  law 
should  evidently  be  to  a  complete  industrial   society. 

It  is  interesting  to  note  that  George  has  tried  to  deny  the 
law,  or  at  least  break  its  force,  by  making  it  apply  to  the  whole 
earth. ^•'*  Now  he  endeavors  to  do  the  same -thing  in  another 
way,  by  confining  attention  to  only  a  part  of  the  industrial  pro- 
cess— that  which  goes  on  at  the  center  of  population. 

After  all,  however,  George  does  not,  in  a  sense,  deny  the 
law  of  diminishing  returns.  He  believes  that  with  the  increase 
in  population  will  come  such  a  division  of  labor  and  increase  in 
labor-efficiency  as  will  more  than  compensate  for  the  diminish- 
ing response  on  nature's  part.     He  says : 

For  even  if  the  increase  of  population  does  reduce  the  power  of  the 
natural  factor  of  wealth,  by  compelling  a  resort  to  poorer  soils,  etc.,  it  yet  so 
vastly  increases  the  power  of  the  human  factor  as  more  than  to  compensate. 
Twenty  men  working  together  will,  where  nature  is  niggardly,  produce 
more  than  twenty  times  the  wealth  that  one  man  can  produce  where  nature 
is  most  bountiful.  '  The  denser  the  population,  the  more  minute  becomes 
the  subdivision  of  labor,  the  greater  the  economies  of  production  and  dis- 
tribution, and,  hence,  the  very  reverse  of  the  Malthusian  doctrine  is  true; 
and,  within  the  limits  in  which  we  have  reason  to  suppose  increase  would 
still  go  on,  in  any  given  state  of  civilization  a  greater  number  of  people 
can  produce  a  larger  proportionate  amount  of  wealth,  and  more  fully  supply 
their  wants,  than  can  a  smaller  number.^® 

In  other  words  the  mere  increase  of  population  will  bring 
about  a  division  of  labor  and  cause  it  to  be  more  productive. 

^Ibid.,  133.  ^"Ibid.,  149-50 


ECONOMICS  OF  "PROGRESS  AND  POVERTY"  721 

It  is  true  that  in  certain  work,  as  in  the  moving  of  heavy 
objects,  two  men  might  accomphsh  twice  as  much  as  one,  but 
this  kind  of  co-operation  is  relatively  unimportant  and  its  limits 
are  soon  reached.  The  proposition  which  George  puts  forth 
is  clearly  untenable.  It  is  disproved  not  only  by  a  priori  reason-, 
ing  but  by  an  appeal  to  the  facts.  China  and  India  are  densely 
populated  and  yet  the  average  amount  of  wealth  produced  by 
the  inhabitants  of  these  lands  is  notoriously  small. 

If  the  principle  as  announced  by  George  were  correct,  it 
would  be  in  the  interest  of  a  greater  production  for  the  larger 
part  of  the  United  States  to  be  given  up  and  for  the  popula- 
tion to  crowd  in  on  a  smaller  area,  so  as  to  make  "greater  the 
economies  of  production  and  distribution."  To  claim  that  pro- 
duction can  be  increased  by  a  restriction  of  area  is  thus  really 
to  deny  the  law  of  diminishing  returns.  Moreover,  this  prin- 
ciple is  inconsistent  with  the  claim  that  the  withholding  of  land 
from  use  by  speculators  lessens  the  total  product. 

Despite  the  curious  and  perverse  treatment  of  diminishing 
returns  which  one  finds  in  Progress  and  Poverty,  it  is  interesting 
to  note  that  in  his  Science  of  Political  Economy  George  states  a 
legitimate  analogue  or  extension  of  this  law.  After  observing 
that  production  takes  place  both  in  time  and  in  space,  he  says : 

Now,  from  this  necessary  element  or  condition  of  all  production,  time, 
there  result  consequences  similar  to  those  which  result  from  the  necessary 
element  or  condition  of  all  production,  space.  That  is  to  say,  there  is  a 
law  governing  and  limiting  the  concentration  of  labor  in  time,  as  there  is 
a  law  governing  and  limiting  the  concentration  of  labor  in  space.  Thus 
there  is  in  all  forms  of  production  a  point  at  which  the  concentration  of 
labor  in  time  gives  the  largest  proportionate  result ;  after  which  the  further 
concentration  of  labor  in  time  tends  to  a  diminution  of  proportionate  result, 
and  finally  to  prevent  result." 

For  example,  if  one  is  to  build  a  warehouse  of  a  given  capacity 
there  is  a  certain  area  on  which  this  may  be  constructed  with 
greatest  advantage.  If  only  half  this  area  should  be  avail- 
able, a  greater  amount  of  labor  and  capital  would  have  to  be 
expended  in  order  to  get  a  warehouse  as  satisfactory  as  the 
first.     This   is  in  accordance  with   what  is  called   the   law  of 

"  Henry  George,  Science  of  Political  Economy,  368-69. 


722  JOURNAL  OF  POLITICAL  ECONOMY 

diminishing  returns  with  respect  to  land.  Now  there  is  a 
certain  time  within  which  the  warehouse  can  be  constructed 
with  most  advantage.  If  it  should  be  required  to  do  this  same 
work  in  half  the  time,  this  would  require,  as  George  points  out, 
a  greater  expenditure  of  labor  and  capital.  This  may  be  called 
the  law  of  diminishing  returns  with  respect  to  time. 

'     II 

George  makes  a  vigorous  attack  upon  the  wages- fund  doc- 
trine, according  to  which  the  rate  of  wages  is  determined  by 
the  ratio  of  this  fund  to  the  number  of  laborers.  He  claims 
that  the  laborer  is  paid  from  the  product  of  his  labor  and  that 
what  really  keeps  down  this  remuneration  is  the  bad  system 
of  distribution.  He  likens  the  process  of  production  to  the 
pouring  of  water  into  a  curved  pipe  already  filled.  "H  a 
quantity  of  water  is  poured  in  at  one  end  a  like  quantity  is 
released  at  the  other.  It  is  not  identically  the  same  water,  but 
is  its  equivalent.  And  so  they  who  do  the  work  of  produc- 
tion put  in  as  they  take  out — they  receive  in  subsistence  and 
wages  but  the  produce  of  their  labor."^^ 

To  John  Stuart  Mill  a  good  part  of  capital  consists  of 
means  of  subsistence.  Since  real  wages  consist  of  commodities 
received  by  the  laborer  it  is  evident  that  with  this  use  of  terms 
wages  are  drawn  from  capital.  George  devotes  a  whole  chapter 
to  showing  the  incorrectness  of  this  proposition,  but  to  do  so 
he  really  uses  the  terms  in  a  different  sense.  To  George  "wages 
are  that  part  of  the  produce  of  his  labor  obtained  by  the  la- 
borer,"^® and  he  gives  such  a  definition  of  capital  as  to  exclude 
means  of  subsistence  already  in  the  hands  of  the  laborer.  He 
defines  capital  as  "wealth  in  course  of  exchange,"  but  he  would 
have  exchange  include  "such  transformations  as  occur  when 
the  reproductive  or  transforming  forces  of  nature  are  utilized 
for  the  increase  of  wealth."-^    When  he  defines  capital  as  wealth 

"J.  B.  Clark  uses  practically  the  same  simile  to  illustrate  the  same  idea. 
See  Distribution  of  Wealth,  313. 

"  Henry  George,  Progress  and  Poverty,  80. 
'"Ibid.,  46. 


ECONOMICS  OF  "PROGRESS  AND  POVERTY"  723 

in  course  of  exchange  the  test  is  pecuniary;  when  he  makes 
exchange  include  the  transformations  wrought  by  the  forces 
of  nature  he  introduces  a  technological  test.  A  sewing-machine 
used  by  a  woman  for  the  making  of  her  own  clothes  is 
not  capital  since  it  is  not  in  course  of  exchange ;  however,  it 
is  a  means  whereby  the  transforming  forces  of  nature  are  used 
in  the  increase  of  wealth.  Although  he  says  that  such  a  machine 
is  excluded  from  the  category  of  capital,-^  he  includes  the  tree 
the  fruit  of  which  is  enjoyed  by  the  owner. -^  Here  is  an 
evident  inconsistency.  Had  he  made  a  slight  change  in  his 
definition  of  capital  so  as  to  make  it  include  wealth  in  the 
course  of  exchange  (including  in  this  consumption  goods  whose 
use  brings  in  an  income  to  the  owner)  and  wealth  used  in  the  pro- 
duction of  wealth  which  is  to  be  exchanged,  his  conception  of 
capital  would  have  been  that  of  the  business  man. 

in 

It  is  George's  purpose  in  Progress  and  Poverty  to  show  that 
there  is  an  identity  of  interests  between  the  laborer  and  the 
capitalist,  but  an  opposition  of  interests  between  the  laborer  and 
the  capitalist  on  the  one  hand  and  the  landlord  on  the  other.  As 
tending  to  obscure  these  relations  he  criticizes  the  classical  defi- 
nition of  profits  which  includes  under  one  term  incomes  of  differ- 
ent nature 'and  origin.    He  says: 

Of  the  three  parts  into  which  profits  are  divided  by  political  economists 
— namely,  compensation  for  risk,  wages  of  superintendence,  and  return  for 
the  use  of  capital — the  latter  falls  under  the  term  interest,  which  includes 
all  the  returns  for  the  use  of  capital,  and  excludes  everything  else;  wages  of 
superintendence  falls  under  the  term  wages,  which  includes  all  returns  for 
human  exertion,  and  excludes  everything  else;  and  compensation  for  risk 
has  no  place  whatever,  as  risk  is  eliminated  when  all  the  transactions  of  a 
community  are  taken  together.^' 

No  objection  is  offered  to  the  definition  which  makes  wages 
include  "all  return  to  human  exertion,"  but  it  should  not  be  for- 
gotten that  this  would  cause  the  organizers  and  captains  of 
industry  to  be  included  among  laborers.    In  speaking  farther  on 

^  Ibid.,  45.  «/btd.,  188. 

"  Henry  George,  Progress  and  Poverty,  161, 


724  JOURNAL  OF  POLITICAL  ECONOMY 

of  the  poor  condition  of  the  laborer  and  of  the  tendency  of 
wages  to  be  forced  to  a  minimum  of  subsistence  he  forgets  his 
inclusive  definition  and  has  in  mind  the  class  of  manual  laborers. 
George  also  speaks  as  though  labor  were  homogeneous,  as  if  there 
were  a  general  market  rate  of  wages,  so  that  a  rise  in  this  rate 
would  benefit  all  laborers  just  as  a  rise  in  the  price  of  wheat  bene- 
fits the  wheat-growers.  Now  it  is  evident  that  there  are  many 
classes  of  laborers  and  that  their  interests  are  not  identical.  The 
manager  of  an  industry  is,  by  George's  definition,  a  laborer,  yet 
he  sometimes  finds  the  reward  of  his  exertion  in  keeping  down 
the  wages  of  his  employees. 

Moreover,  the  question  of  risk  is  not  disposed  of  by  simply 
saying  it  has  no  place  "since  it  is  eliminated  when  all  the  trans- 
actions of  a  community  are  taken  together."  Risk-taking  is, 
in  fact,  a  distinct  element  in  business  and  has  its  reward.  If 
George's  position  is  correct  there  is  no  reason,  from  a  financial 
point  of  view,  why  a  man  should  not  as  readily  take  the  risks  of 
gambling  as  those  of  industry.  An  insurance  company  does 
not  assume  risks  without  a  reasonable  expectation  of  gain,  and 
the  same  is  true  of  the  business  man.  There  are  more  gains 
than  losses  and  hence  the  inducement  for  honest  and  sagacious 
men  to  engage  in  business. 

It  is  easy  to  see  how  this  scheme  of  distribution  according  to 
which  the  income  of  society  is  divided  into  rent,  interest,  and 
wages  suits  George's  purpose.  By  his  peculiar  theory  of  the 
relation  of  capital  and  labor  he  finds  that  wages  and  interest  rise 
and  fall  together.  This  enables  him  to  reach  the  conclusion  for 
which  he  was  preparing,  that  the  opposition  of  interests  is  that 
of  the  landlord  against  all  the  other  members  of  society. 

George's  conception  of  capital  and  its  relation  to  labor  may 
be  seen  from  the  following  passage : 

For  labor  and  capital  are  but  different  forms  of  the  same  thing — human 
exertion.  ("Capital  is  produced  by  labor ;  it  is,  in  fact,  but  labor  impressed 
upon  matter — labor  stored  up  in  matter,  to  be  released  again  as  needed,  as 
the  heat  of  the  sun  stored  up  in  coal  is  released  in  the  furnace.  The  use 
of  capital  in  production  is,  therefore,  but  a  mode  of  labor.^* 

^^/fojrf.,  198. 


ECONOMICS  OF  "PROGRESS  AND  POVERTY"  725 

Now  if  it  be  true  that  capital  is  nothing  more  than  stored-up 
labor  to  be  released  as  needed,  there  is  no  explanation  or  justifi- 
cation of  interest  possible.  A  cask  of  wine  represents,  let  us  say, 
a  certain  amount  of  stored-up  labor.  After  it  has  lain  in  the 
cellar  of  the  wine  merchant  for  several  years,  it  has  a  greater 
capital  value,  but  it  cannot  be  said  that  the  difference  is  due  to 
additional  labor  bestowed  on  it.  The  heat  of  the  sun  is  in  a 
sense  stored  up  in  coal,  but  its  combustion  today  will  produce  no 
more  heat  than  if  it  had  been  burned  many  years  ago.  If  a 
hundred  gallons  of  water  be  stored  in  a  tank,  no  more  than  this 
amount  can  be  withdrawn,  whether  you  wait  a  day  or  a  year. 
If  capital  were,  as  George  says,  only  stored-up  labor,  it  could  be 
of  use  only  by  a  lessening  of  this  labor-fund.  We  know,  how- 
ever, that  it  is  the  quality  of  capital  to  yield  an  income  and  at 
the  same  time  to  maintain  unimpaired  the  original  fund  of 
wealth.  Capital,  in  fact,  represents  not  merely  labor  that  has 
been  embodied  in  material  form,  but  also  the  costs  due  to  waiting 
and  abstinence  and  the  advantage  that  comes  from  having  present 
rather  than  future  goods.  The  idea  that  capital  is  merely  stored- 
up  labor  allows  no  explanation  of  the  difference  in  value  due  to 
a  difference  in  time.  It  arises  from  a  confusion  of  the  hire  paid 
for  the  use  of  perishable  capital  goods  with  interest  paid  for  the 
use  of  an  unimpaired  capital  fund.^''^ 

George  says  that  the  rate  of  interest  must  be  such  that  "the 
reward  of  capital  and  the  reward  of  labor  will  be  equal — that 
is  to  say,  will  give  an  equally  attractive  result  for  the  exertion  or 
sacrifice  involved. "^"^     As  above  quoted,  he  speaks  of  labor  and 

'^  Besides  this  view  of  interest  which  regards  it  as  paid  for  the  release  and 
use  of  stored-up  labor,  George  has  another  and  more  famous  theory  of  interest 
according  to  which  he  attempts  to  explain  this  phenomenon  by  reference  to  the 
reproductive  vital  forces  of  nature.  R.  S.  Moffat  {Mr.  Henry  George  the  Ortho- 
dox, 152)  speaks  of  this  as  "one  of  the  purest  and  most  original  of  the  efforts 
of  Mr.  George's  genius  as  an  economical  reasoner."  This  much  is  certainly  to 
his  credit,  that  he  recognizes  that  there  is  an  interest  problem.  "What  is  the 
reason  and  justification  of  interest?  Why  should  the  borrower  pay  back  more 
to  the  lender  than  he  received?"  (Henry  George,  Progress  and  Poverty,  17s). 
These  questions  some  economists  have  hardly  thought  it  necessary  to  ask.  For 
criticism  of  this  theory  see  Bohm-Bawerk,  Capital  and  Interest,  413-20,  and 
Fisher,  The  Rate  of  Interest,  22,  23. 

^^  Henry  George,  Progress  and  Poverty,  198. 


726  JOURNAL  OF  POLITICAL  ECONOMY 

capital  as  "but  different  forms  of  the  same  thing — human 
exertion."  Now  it  is  not  true  that  wages  and  interest  are  paid 
for  the  same  thing.  From  the  laborer's  point  of  view,  wages  are 
paid  for  human  exertion.  From  the  point  of  view  of  the  capital- 
ist, interest  is  paid  for  the  postponement  of  consumption,  for 
waiting  or  abstinence.  If  the  laborer  in  a  wagon  factory  should 
receive  a  wagon  for  his  month's  labor,  this  would  constitute  his 
wages,  the  reward  for  his  exertion.-'  If  in  place  of  exchanging 
the  wages  for  present  consumption  goods  he  should  hire  the 
wagon  for  ten  dollars  a  year,  this  interest  would  be  paid  to  him 
as  a  capitalist,  and  for  waiting,  or  abstinence,  and  would  not  be 
paid  to  him  as  a  laborer  in  compensation  for  his  exertion. 

Speaking  of  this  natural  relation  between  interest  and  wages 
— this  equilibrium  at  which  both  will  represent  equal  returns  to 
equal  exertions — George  says  : 

And  this  relation  fixed,  it  is  evident  that  interest  and  wages  must  rise 
and  fall  together,  and  that  interest  cannot  be  increased  without  increasing 
wages;  nor  wages  lowered  without  depressing  interest.  For  if  wages  fall, 
interest  must  also  fall  in  proportion,  else  it  becomes  more  profitable  to 
turn  labor  into  capital  than  to  apply  it  directly ;  while,  if  interest  falls,  wages 
must  likewise  proportionately  fall,  or  else  the  increment  of  capital  would 
be  checked.^' 

It  is  easy  to  show  that  this  reasoning  is  fallacious.  Let  us 
suppose  that  our  laborer-capitalist  receives  one  hundred  dollars 
a  month  for  his  labor  and  that  he  may,  if  he  pleases,  exchange 
this  amount  of  money  for  a  perpetual  annuity  of  six  dollars. 
Assume  further  that  this  establishes  what  George  calls  the  equi- 
librium between  wages  and  interest — but  what  should  be  more 
truly  called  the  equilibrium  between  present  and  future  goods. 
If  now  wages  should  fall  so  that  he  receives  only  fifty  dollars  a 
month,  George  says  that  interest  must  also  fall  in  proportion, 
else  it  becomes  more  profitable  to  turn  labor  into  capital  than  to 
apply  it  directly.  If  by  this  he  means  that  when  wages  fall  to 
one-half  their  former  amount  a  month's  wages  will  exchange 
for  a  perpetual  annuity  of  only  three  dollars,  this  may  be  granted. 

"  It   would   not   constitute,   of   course,   his   real   wages,   since   these   are   the 
consumption  goods  that  he  ultimately  receives  for  his  exertion. 
^^  Ibid.,  199. 


ECONOMICS  OF  "PROGRESS  AND  POVERTY"  727 

Certainly  if  the  month's  wages  could  be  still  exchanged  for  an 
annuity  of  six  dollars,  the  laborer-capitalist  would,  -under  the 
hypothesis,  accept  his  reward  in  this  form  rather  than  in  con- 
sumption goods.  If  he  has  counted  such  an  annuity  equal  to  one 
hundred  dollars  in  present  goods,  it  is  of  course  to  be  preferred 
to  half  this  amount. 

George,  however,  really  means  that  a  fall  in  wages  will  cause 
a  similar  fall  in  interest,  not  as  an  absolute  amount,  but  as  a 
percentage.  This  may  be  clearly  seen  from  the  following  quo- 
tation : 

Is  it  not  true  that  wherever  there  has  been  a  general  rise  or  fall  in 
wages  there  has  been  at  the  same  time  a  similar  rise  or  fall  in  interest? 
In  California,  for  instance,  when  wages  were  higher  than  anywhere  else  in 
the  world,  so  also  was  interest  higher.  Wages  and  interest  have  in  Cali- 
fornia gone  down  together.  When  common  wages  were  $5  a  day,  the  ordi- 
nary bank  rate  of  interest  was  24  per  cent,  per  annum.  Now  that  common 
wages  are  $2.00  to  $2.50  a  day,  the  ordinary  bank  rate  is  from  10  to  12 
per  cent."' 

Let  us  apply  then  this  principle  of  .George  to  the  supposed 
condition  in  which  the  laborer-capitalist  finds  an  equal  reward 
in  accepting  for  his  wages  one  hundred  dollars  in  present  goods 
or  an  annuity  of  six  dollars.  If  wages  fall  to  fifty  dollars,  or 
one-half,  George  says  the  rate  of  interest  will  fall  in  the  same 
ratio,  i.e.,  from  6  to  3  per  cent.  Now  3  per  cent,  of  fifty  dollars 
is  one  dollar  and  a  half.  If  the  wages  fall  one-half,  the  annuity 
for  which  the  wages  can  exchange  will  fall  to  one- fourth!  The 
smaller  the  wages  of  our  laborer-capitalist,  the  less  the  rate  at 
which  he  will  be  willing  and  able  to  lend !  By  the  same  principle, 
if  wages  should  double,  the  annuity  for  which  they  would  ex- 
change would  quadruple. 

There  are  no  reasons  based  on  theory  which  would  lead  us  to 
believe  that  there  is  any  such  connection  between  wages  and 
interest,  and  an  examination  of  statistics  likewise  fails  to  reveal 
it.  A.  L.  Bowley  estimates  that  the  average  real  wages  in 
England  for  the  years  1850,  i860,  1870,  1880,  1890  were  in 
proportion  to  the  numbers  50,  55,  60,  70,  84,  where  the  bank 

^  Ibid.,  19,  20;  see  also  p.  199. 


728  JOURNAL  OF  POLITICAL  ECONOMY 

rates  for  those  years  were  £2  10^  id,  £4  3^  yd,  £3  2s  od,  £2  15J 
^d,  £4  los  2,d  per  £100  respectively.^" 

That  wages  and  interest  fall  and  rise  together  and  in  the  same 
ratio  is  thus 'a  proposition  in  support  of  which  little  can  be  said. 
George  reaches  the  result  by  arbitrary  and  illogical  methods.  It 
finds  a  place  in  his  system  because  it  can  be  used  to  show  an 
identity  of  interest  between  laborer  and  capitalist;  and  if  their 
interests  are  one,  it  is  the  more  easy  to  unite  them  against  their 
common  foe,  the  landlord. 

The  law  of  wages  at  which  George  arrives  is  : 

Wages  depend  upon  the  margin  of  cultivation  or  upon  the  produce  which 
labor  can  obtain  at  the  highest  point  of  natural  productiveness  open  to  it 
without  the  payment  of  rent.^^ 

By  the  highest  point  of  natural  productiveness  open  without  the 
payment  of  rent  he  means  the  best  quality  of  no-rent  land. 

George's  statement  of  the  law  of  interest  is  similar  to  that  of 
the  law  of  wages : 

....  So  may  we  put  the  law  of  interest  in  a  form  which  directly  con- 
nects it  with  the  law  of  rent,  by  saying  that  the  general  rate  of  interest  will 
be  determined  by  the  return  to  capital  upon  the  poorest  land  to  which 
capital  is  freely  applied — that  is  to  say,  upon  the  best  land  open  to  it  without 
the  payment  of  rent.^ 

In  another  place  he  says : 

This  natural  relation  between  interest  and  wages — this  equilibrium  at 
which  both  will  represent  equal  returns  to  equal  exertions — may  be  stated 
in  a  form  which  suggests  a  relation  of  opposition;  but  this  opposition  is 
only  apparent.  In  a  partnership  between  Dick  and  Harry,  the  statement 
that  Dick  receives  a  certain  proportion  of  the  profits  implies  that  the  por- 
tion of  Harry  is  less  or  greater  as  Dick's  is  greater  or  less ;  but  where,  as 
in  this  case,  each  gets  only  what  he  adds  to  the  common  fund,  the  increase 
of  the  portion  of  the  one  does  not  decrease  what  the  other  receives.^ 

George  thus  announces  that  wages  are  determined  by  the 
productivity  of  labor  upon  no-rent  land;  that  the  rate  of  interest 
is  determined  by  the  return  to  capital  upon  this  same  marginal 

""*  A.  L,  Bowley,  Statistical  Studies  Relating  to  National  Progress  in  Wealth 
and  Trade  Since  1882,  33. 

^^  Henry  George,  Progress  and  Poverty,  213. 

'•Ibid.,  201.  *^  Ibid.,   199. 


ECONOMICS  OF  "PROGRESS  AND  POVERTY"  729 

land;  that  capital  and  labor  each  gets  what  it  adds  to  the  total 
product  of  industry.  This  is  very  interesting,  since  it  contains 
a  suggestion  of  the  theory  of  the  specific  productivity  of  the 
separate  factors  of  production. 

It  must  be  admitted,  however,  that  George  did  not  have  a 
definite  comprehension  of  the  principle  of  the  marginal  pro- 
ductivity of  the  separate  factors.  His  habit  of  conceiving  of 
the  product  of  industry  as  the  product  of  labor  would  preclude 
such  an  understanding.  Moreover,  although  we  can  find  pas- 
sages, as  above  given,  in  which  he  states  that  capital  and  labor 
each  gets  what  it  produces,  he  does  not  show  how  the  product 
of  labor  can  be  distinguished  from  the  product  of  capital.  It 
is  evident  that  in  normal  modern  industry  every  product  is  a 
joint  product,  and  that  there  is  no  product  of  capital  or  of  labor 
in  and  by  itself. 

In  a  recent  French  work  the  authors  say : 

M.  Clark  dans  sa  Distribution  of  Wealth  declare  avoir  emprunte  a 
George  I'idee  de  la  methode  par  laquelle  il  s'efforce  de  determiner  la  pro- 
ductivite  propre  de  chaque  facteur  de  la  production." 

A  casual  reader  of  Clark  is  not  likely  to  recognize  any  such 
admission.  He  refers  to  George's  theory  "with  all  its  absurdity." 
He  does  write,  however: 

The  theory  that  makes  them  [the  gains  of  the  laborer  cultivating  no-rent 
land]  set  the  standard  of  all  wages  has  the  great  merit  of  pointing  out_a 
method  by  which  the  product  of  bare  work  may  be  disentangled  from  all 
other  products,  and  made  to  stand  by  itself  and  to  be  separately  measured.'" 

The  failure  of  George  to  recognize  any  other  marginal  field 
for  labor  than  no-rent  land  led  him  to  erroneous  conclusions. 
Thus  he  says : 

Where  land  is  subject  to  ownership  and  rent  arises,  wages  will  be  fixed 
by  what  labor  could  secure  from  the  highest  natural  opportunities  open— r5 
it  without  the  payment  of  rent. 

Where  natural  opportunities  are  all  monopolized,  wages  may  be  forced 
by  the  competition  among  laborers  to  the  minimum  at  which  laborers  will 
consent  to  reproduce."^ 

"  Gide  et  Rist's  Histoire  des  doctrines  economiques  depuis  les  physiocrates 
jusqu'a  nos  jours   (1909),  645-46. 

=^  Clark,  The  Distribution  of  Wealth,  88. 

^'  Henry  George,  Progress  and  Poverty,  213. 


730  JOURNAL  OF  POLITICAL  ECONOMY 

And  later: 

One  man  will  not  work  for  another  for  less  than  his  labor  will  really 
yield,  when  he  can  go  upon  the  next  quarter-section  and  take  up  a  farm 
for  himself.  It  is  only  as  land  becomes  monopolized  and  these  natural 
opportunities  are  shut  off  from  labor,  that  laborers  are  obliged  to  compete 
with  each  other  for  employment,  and  it  becomes  possible  for  the  farmer 
to  hire  hands  to  do  his  work  while  he  maintains  himself  on  the  difference 
between  what  their  labor  produces  and  what  he  pays  them  for  it.'^ 


As  a  matter  of  fact,  there  is  an  intensive  as  well  as  an 
extensive  margin  of  cultivation.  This  no-rent  margin  exists  even 
though  every  acre  in  the  country  should  be  subject  to  private 
ownership  and  yield  a  handsome  rent.  If  as  is  the  case  in  most 
industries  the  addition  of  a  laborer  will  result  in  an  increase  in 
the  total  product,  there  will  be  competition  among  the  employers 
for  his  services.  The  tendency  will  be  for  his  wages  to  equal  the 
present  worth  of  the  increase  in  the  product  of  industry  which 
results  from  his  addition  to  the  number  of  laborers.  This 
intensive  margin  of  cultivation  is  as  real  as  that  of  no-rent  land. 
It  is  indeed  possible  that  when  all  the  land  is  privately  owned 
an  effective  combination  of  landowners  to  force  down  wages 
might  work  as  George  says,  but  such  combinations  are  almost, 
if  not  quite,  impossible  to  create,  and  certainly  do  not  exist. 

Moreover,  the  laborer  will  directly  receive  as  much  wages 
on  this  margin  under  the  system  of  private  ownership  of  land 
as  he  would  under  the  Single-Tax  system.  If  that  system  would 
help  the  laboring  man,  it  would  be  by  a  change  in  the  incidence 
of  taxation  rather  than  by  a  direct  increase  in  wages. 

IV 

The  full  title  of  George's  famous  book,  Progress  and  Poverty, 
an  Inquiry  into  the  Causes  of  Industrial  Depression  and  of 
Increase  of  Want  zvith  Increase  of  Wealth,  the  Remedy,  shows 
that  he  attached  considerable  importance  to  his  explanation  of 
crises.  The  discussion  of  industrial  depressions  is  perhaps  the 
weakest  part  of  his  book  and  it  affords  a  warning  example  of 
the  deductive  method  when  it  is  not  checked  and  tested  by  an 
appeal  to  plain  facts. 

*'  Ibid.,  214-15. 


ECONOMICS  OF  "PROGRESS  AND  POVERTY"  731 

His  theory  can  be  simply  stated.  Speculation  in  land  increases 
rent  and  consequently  forces_dovvn  wages  and  interest.  The 
laborers  and  capitalists  naturally  resist  this  movement,  produc- 
tion is  interfered  with,  people  are  not  all  able  to  buy  the  goods 
that  are  made,  and  hence  industrial  crises  with  the  phenomena 
of  apparent  over-production  and  under-consumption.^*^  This 
assumes  that  speculation  in  land  causes  it  to  have  a  higher 
value  and  that  this  leads  to  increased  rent.  Now  it  is  rent  that 
determines  the  value  of  land  and  not  the  value  of  land  that 
determines  the  rent.  Speculation  is  based  on  estimates  of  the 
future  rentals  of  land.  Rent  charges  in  the  present  will  be 
increased  by  speculation  only  so  far  as  it  withdraws  land  from 
use  or  has  an  indirect  and  psychological  effect  in  stimulating 
demand.  It  is  evidently  the  case  that  the  owner  of  land  will 
usually  be  desirous  of  renting  the  land  even  if  he  does  not  sell  it. 
Herein  is  a  difference  between  speculation  in  commodities  and 
speculation  in  land.  Grain,  for  example,  can  be  used  only  once 
and  those  who  have  large  quantities  sometimes  withhold  it  from 
the  market  to  force  up  the  price.  Land  can  be  used  continuously. 
He  who  buys  it  hoping  to  reap  a  gain  in  an  increased  value  in 
the  future  is  usually  glad  to  rent  it  in  the  meantime,  since  other- 
wise he  would  lose  so  much  income. 

By  common  consent,  George  further  argues,  the  lack  of 
..adjustment  between  production  and  consumption  is  due  to  specu- 
lation. But  speculation  in  what?  Not  in  the  products  of  labor, 
for,  as  is  well  known,  such  speculation  tends  to  steady  the  rela- 
tion of  production  to  consumption,  to  equalize  supply  or  demand. 
Therefore  the  hurtful  speculation  must  be  in  that  which  is  not 
the  product  of  labor  and  yet  is  necessary  to  production — that 
is  land.^''  This  sort  of  a  priori  reasoning  is  characteristic  of 
George's  treatment  of  crises. 

He  further  argues  that  "this  check  to  production,  which 
shows  itself  in  decreased  purchasing  power  we  must  ultimately 
find  ....  in  some  obstacle  which  checks  labor  in  expending 
itself  on  land.  And  that  obstacle,  it  is  clear,  is  the  speculative 
advance  in  rent,  or  the  value  of  land,  which  produces  the  same 

'^/ftjcf.,   262.  »»/fetU,  265. 


732  JOURNAL  OF  POLITICAL  ECONOMY 

effects  as,  as  in  fact  it  is,  a  lock-out  of  labor  and  capital  by  land- 
owners.""*'^    Expressing  the  same  thought  he  says  a  little  farther 

on:    "The  land  is  the  source  of  all  wealth And,  hence, 

when  labor  cannot  satisfy  its  wants,  may  we  not  with  certSinty" 
infer  that  it  can  be  from  no  other  cause  than  that  labor  is  denied 
access  to  land?"^^ 

Evidently  the  wish  is  father  to  the  thought.  George  sees  in 
private  ownership  of  land  a  great  economic  evil  and  he  wishes 
to  trace  to  it  as  many  of  our  ills  as  possible.  It  is  conceivable 
that  there  may  be  in  certain  localities,  as  was  perhaps  true  of 
San  Francisco  just  before  1873,  such  a  craze  of  speculation  in 
land  as  to  amount  to  a  lock-out  there  of  labor  and  capital,  but 
such  phenomena  are  quite  local  and  capital  can  find  employment 
elsewhere.  One  cannot  find  a  satisfactory  explanation  of  a 
general  crisis  in  causes  so  limited  in  their  operation.  George 
ignores  the  fact  that  in  time  of  industrial  depression  and  pre- 
ceding it  the  landow^ners  are  as  anxious  as  the  capitalists  to 
get  income  from  their  property.  Indeed  one  hears  more  in 
time  of  depression  of  timid  capitalists  than  of  timid  landowners. 
Would  you  therefore  conclude  that  there  is  a  lock-out  of  land 
and  labor  by  capital?  George  offers  no  evidence  of  the  exist- 
ence of  a  "lock-out  of  labor  and  capital  by  landowners"  either 
during  or  preceding  a  panic.  Indeed  since  the  capitalists  or 
entrepreneurs  usually  own  as  much  land  as  they  need  for  carry- 
ing on  their  business  it  is  difficult  to  see  how^  such  a  dock-out 
could  occur. 

As  a  further  example  of  George's  reasoning  take  the  fol- 
lowing : 

Yet  that  there  is  a  connection  between  the  rapid  construction  of  railroads 
and  industrial  depression,  anyone  who  understands  what  increased  land- 
values  mean,  and  who  has  noticed  the  effect  which  the  construction  of 
railroads  has  upon  land-speculation  can  easily  see.  Wherever  a  railroad 
was  built  or  projected,  lands  sprang  up  in  value  under  the  influence  of 
speculation,  and  thousands  of  millions  of  dollars  were  added  to  the  nomi- 
nal values  which  capital  and  labor  were  asked  to  pay  outright,  or  to  pay  in 
instalments,  as  the  price  of  being  allowed  to  go  to  work  and  produce 
wealth.     The  inevitable  result   was  to  check  production   and  this   check   to 

*^Ibid.,  267-68.  *^Ibid.,  270. 


ECONOMICS  or  "PROGRESS  AND  POVERTY"  733 

production  propagated  itself  in  a  cessation  of  demand,  which  checked  pro- 
duction to  the  farthest  verge  of  the  wide  circle  of  exchanges,  operating  with 
accumulated  force  in  the  centers  of  the  great  industrial  commonwealth  into 
which  commerce  links  the  civilized  world." 

The  railroads  of  which  he  writes  passed  for  the  most  part 
through  districts  sparsely  settled  or  not  inhabited  at  all.  Here 
land-values  were  increased.  But  how  could  production  be 
checked  when  there  'was  no  production  or  almost  none  before 
the  railroads  came?  Again,  those  who  do  not  themselves  culti- 
vate land  and  who  do  not  care  to  sell  it  are  in  nearly  all  cases  glad 
to  rent  it  and  on  conditions  which  do  not  call  for  the  payment 
of  rent  until  a  crop  has  been  made.  It  is  thus  not  correct  to 
say  that  capital  and  labor  are  required  to  pay  out  vast  sums 
"as  the  price  of  being  allowed  to  go  to  work  and  produce  wealth." 
Even  if  the  man  who  uses  the  land  buys  the  title  by  the  pay- 
ment of  capital  this  sale  need  occasion  no  loss  to  industry  since 
in  the  hands  of  the  new  owner  this  wealth  may  be,  and  in  most 
cases  will  be,  put  to  new  uses.  Lastly,  some  of  the  capital 
spent  in  the  construction  of  railroads  was  overflow  and  surplus 
capital,  and  its  use  in  the  West  caused  no  lessening  of  produc- 
tion in  the  quarters  from  which  it  came.  It  is  indeed  maintained 
that  vast  expenditures  of  labor  and  capital  sunk  in  railroads 
which  run  through  new  territory  do  often  result  in  an  immediate 
lessening  of  the  income  of  the  community,  just  as  would  be  pro- 
duced by  an  undue  amount  of  unproductive  consumption.  This, 
however,  is  not  the  argument  of  George.  He  would  have  it  that 
there  is  a  check  to  production  where  there  is,  and  because  of,  the 
increase  in  land-values. 

V 

In  previously  quoted  passages  George  states  that  low  wages 
are  due  to  the  monopolization  of  land.  It  is  true  that,  if  a  com- 
modity is  made  of  three  materials  A,  B,  and  C,  and  if  A  is  subject 
to  monopoly  control  while  B  and  C  are  freely  producible  under 
competitive  conditions,  the  monopolist  of  A  will  be  able  to  absorb 
all  the  gains  due  to  an  increase  in  the  value  of  the  commodity. 
George  really  applies  this  principle  to  commodities  in  general, 

**  Ibid.,  272-73. 


734  JOURNAL  OF  POLITICAL  ECONOMY 

the  products  of  land,  labor,  and  capital.  Land  is  a  "monopoly," 
capital  and  labor  are  not,  and  hence  the  landlord  absorbs  all  the 
gains  of  progress.  The  fallacy  consists  in  the  use  of  the  word 
monopoly  in  two  senses.  The  material  A  is  monopolized  when 
its  supply  is  subject  to  substantial  unity  of  control.  Land  is 
called  a  monopoly  because  limited  in  amount,  but  there  exists  no 
unity  in  its  control  and  the  landlords  have  consequently  no  power 
to  absorb  all  differential  gains. '^^ 

Following  the  adage  which  recommends  giving  a  dog  a  bad 
name  in  order  that  he  may  be  killed  George  gives  such  a  definition 
of  wealth  as  to  exclude  land  and  makes  an  illogical  defense  of  the 
proposed  innovation  which  showed  that  he  confused  land  with 
land-titles.'*^  He  puts  forward  the  labor  theory  of  property 
rights,  since  this  does  not  justify  the  ownership  of  land.^'^  This 
theory  leads  naturally  to  another  erroneous  doctrine,  the  labor 
theory  of  value.'*^ 

In  treating  of  land  his  constant  purpose  is  to  minimize  it  as  an 
agent  in  production  and  to  magnify  it  as  a  factor  in  distribution. 
He  says, 

It  [rent  or  land-value]  in  no  wise  represents  any  help  or  advantage 
given  to  production,  but  simply  the  power  of  securing  a  part  of  the  results 
of  production." 

li  rent  represented  no  help  or  advantage  in  production  the 
producer  would  do  without  the  use  of  land.  Rent  "represents" 
help  or  advantage  in.  production  in  the  same  way  that  wages  do. 
The  payment  of  wages  is  not  in  itself  an  advantage  but  it  repre- 
sents that  which  is  such — labor. 

On  the  whole  George's  system  of  economics  is  in  many  places 
so  fallacious  and  his  doctrines  so  untenable  that  Progress  and 
..Poverty  will  doubtless  cease  to  be  the  Bible  of  the  Single  Taxers, 
if,  indeed,  this  is  not  true  already.  Some  of  these  economic 
errors,  as,  for  example,  the  explanation  of  the  nature  of  interest. 
have  nothing  to  do  with  the  land  tax.    Others,  such  as  his  theory 

*^  For  different  definitions  and  uses  of  the  word  "monopoly"  see  Ely,  Monopo- 
lies and  Trusts,  chap.  i. 

"Henry  George,  Progress  and  Poverty,  38,  39. 

^'^ Ibid.,  332-35.  *^ Ibid.,  40,  142.  "Ibid.,  166. 


J  >     >    >  >      I. 

•  ■»  ,  >    )    J    J 

•  •',>»     » » 

•  >        1      s  1 


»       »         >    1  > » 
•  •     »        »   » .     ' 


*  ECONOMICS  OF  "PROGRESS  AND  POVERTY"  735 

uf  crises  and  his  doctrine  that  rent  absorbs  ah  the  gains  of 
progress,  spring  from  a  desire  to  make  the  case  against  the 
present  system  as  strong  as  possible. 

Whatever  of  truth  there  may  be  in  the  Single-Tax  contentions 
flows  from  the  facts  that  land  is  the  gift  of  nature  rather  than 
the  product  of  human  toil,  that  its  value  is  due  to  the  activities 
of  the  community  rather  than  of  the  owner,  and  that  a  tax  upon 
it  is  not,  generally  speaking,  a  burden  on  industry. 

At  bottom  the  principle  which  underlies  George's  doctrine  of 
taxation  is  that  the  government  should  be  supported  by  the  appj^- 
priation  of  unearned  income.  Besides  the  rent  of  land  tHere  are 
three  other  conspicuous  examples  of  such  incomes — those  due  to 
special  franchise^  to  tlie  tariff,  and  to  inheritance.  Special  fran- 
chises, e.g.,  the  permission  to  use  the  streets  of  the  city  by  an 
electric  railway  company,  usually  depend  on  the  use  of  land,  and 
whatever  remedies  need  to  be  effected  can  be  accomplished 
through  the  power  to  exact  a  rent  charge.  One  who  accepts 
George's  doctrines  believes  that  the  just  ownership  of  property 
carries  with  it  a  natural  and  perfect  right  to  transmit  it  untaxed 
to  another,  but  this  doctrine  now  properly  finds  little  acceptance. 

Radical  reformers  of  the  present  day  may  for  the  most  part 
be  divided  into  two  classes — those  who  believe  that  the  state 
should  undertake  to  carry  on  the  production  and  distribution  of 
w'ealth  and  those  who  by  taxation  and  otherwise  would  destroy 
all  kinds  of  special  privilege, ^^  leaving  the  production  and  distri- 
bution of  wealth  to  be  determined  by  the  forces  of  competition 
and  extending  the  functions  of  government  by  a  larger  service 
of  the  people  through  the  provision  of  better  educational  facili- 
ties, parks,  playgrounds,  etc.,  and  by  such  regulations  as  may  be 
needed  to  secure  fair  and  proper  conditions  of  competition.  The 
Socialists  represent  one  of  these  groups  and  the  Single  Taxers 
the  other. 

Edgar  H.  Johnson 

*'  The  word  privilege  is  one  of  which  the  recent  Single  Taxers  make  much 
use.  Henry  George,  Jr.,  has  written  The  Menace  of  Privilege,  and  the  title  of 
a  recent  book  by  F.  C.  Howe  is  Privilege  and  Democracy  in  America. 


loAN  DEPT 


**.-, 


